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Shares in education companies fall sharply after warning over ChatGPT

Shares in online learning service Chegg have plummeted by almost half after it became one of the first companies to admit that artificial intelligence chatbot ChatGPT had affected its finances.

The news sent ripples through the sector, with shares in London-listed Pearson falling more than 13.8 per cent on Tuesday. Shares in US-listed education companies Udemy and Coursera dropped less sharply, by 4.95 per cent and 3.3 per cent respectively.

In results announced on Monday, California-based Chegg, which offers on-demand answers to college course questions for $19.95 a month, reported a 7 per cent fall in revenue year on year in the first quarter of 2023 to $187.6mn. Its number of subscribers dropped 5 per cent to 5.1mn.

The company withdrew its full-year guidance and its Nasdaq-listed shares fell 47.9 per cent to $9.17 as markets opened on Tuesday.

The blow to education companies comes as businesses grapple with the threat from generative AI that can replicate their services and products more cheaply.

Colleges have previously accused Chegg of allowing students to access answers they then submit as their own, and are now struggling with the same threat from OpenAI’s widely available ChatGPT.

Dan Rosensweig, Chegg chief executive, said on an earnings call that generative AI would affect society and business “at a faster pace than people are used to”, adding that education was already experiencing the impact.

“Since March we saw a significant spike in student interest in ChatGPT,” he said. “We now believe it’s having an impact on our new customer growth rate.”

However, Rosensweig insisted the technology would “advantage Chegg” over time, adding that the company was “embracing [generative AI] aggressively and prioritising our investments to meet this opportunity”.

The company launched CheggMate last month, a new service built with ChatGPT-4 that enables students to get tailored content through conversations with AI and to access quizzes.

Tom Singlehurst, an analyst at Citigroup, said that ChatGPT would directly replicate the “study guide” service offered by Chegg. However, for Pearson, which creates course materials, the new technology was more likely to be a “second-order threat” that would “alter the way content was created by course administrators” in ways that were not yet clear.

He added that the threat from generative AI was not the only challenge for Chegg, which struggled to maintain its rapid growth as learning moved online during the Covid-19 pandemic.

Colleges have also accused Chegg of enabling students to cheat by accessing on-demand answers to course questions.

However, educators face an even starker challenge from ChatGPT, which allows students to generate answers to college questions and even full essays for free.

Rosensweig has called claims that Chegg is enabling students to cheat “nonsense”, arguing the company gives underprivileged students support they would otherwise be unable to access.

“It has nothing to do with looking up answers,” he told the Financial Times last year. “These are students that have had no support for most of their life — the way we are used by the overwhelming majority of students is to learn.”